Oregon Proposes Bill for ETS Starting in 2021

On 4 February 2019, House Bill 2020 (HB2020) was proposed, outlining a cap-and-trade program for the State that would start in 2021. The cap (exact number yet to be set) would decline in a manner that would allow the state to achieve proposed targets of a 45% reduction below 1990 levels by 2030 and of 80% by 2050 target. The proposed program design bears a close resemblance to the Californian Cap-and-Trade Program. The bill proposes the following design features:

Sector coverage: Similar to the Californian program, the Oregon proposal covers entities emitting more than 25,000 tCO2e in the power and industry sectors, as well as transportation fuels (excluding aviation, watercraft and train fuels).

Allocation: The bill foresees a mix of free allocation and auctioning.

Unlike the Californian program, electricity companies receive allowances equal to a forecast of emissions associated with serving their retail customers until 2030, and decline from that point at the rate of the overall cap. Electricity system managers receive allowances for 100% of forecast emissions in 2021 but this share declines from 2022. Natural gas utilities would be eligible for allowances based on the share of emissions from natural gas that is used by low-income residential customers. While these allowances are not consigned to auction (like in California), natural gas and electricity entities must spend revenue from any allowances sold on mitigation activities or energy assistance to retail customers (e.g. direct bill assistance).

Auctions would be held at least annually with a slowly increasing auction price floor, a price containment reserve and a hard price ceiling that would increase by a fixed percentage over inflation each year. Trigger prices are to be set in light of carbon prices in other jurisdictions and in a manner that enables Oregon to pursue linking agreements with other jurisdictions. Auctioning revenue be distributed among three funds: a Transportation Decarbonization Investments Account, which serves to distribute auctioning proceeds from the transportation sector (i.e. for allowances bought by fuel distributors) back into that sector; a Common School Fund to fund programs and activities at state public schools; and a Climate Investments Fund to finance mitigation and adaptation activities in the state.

Carbon leakage protection: In 2021, entities in emissions-intensive, trade-exposed (EITE) sectors would receive all allowances for free based on sector or facility-specific production benchmarks. The 100% free allocation share will start to decline in 2022.

Offsets: Up to eight percent of a regulated entity’s compliance obligation can be met by offset credits generated from projects in the United States or in a jurisdiction that Oregon has entered into a linking agreement with. Offset protocols are yet to be developed. This lies with the Director of the Oregon Carbon Policy Office. A compliance offsets protocol advisory committee will also aid the office in developing and updating rules to increase offset projects with direct environmental benefits for the state, as well as those that benefit impacted communities, Indian tribes, and natural and working lands.

Linking: Similar to the Californian program, the Governor of Oregon must be satisfied that a potential linking partner’s program has equivalent or stricter ETS regulations than Oregon and that the regulations of the Oregon ETS would be enforceable in that jurisdiction.

The bill will be subject to several stakeholder testimonies and public hearings in February 2019. Governor Kate Brown and Democratic leaders in both the Senate and House (now both controlled by Democrats following the 2018 midterm elections) have identified the bill’s passage as a top priority for the 2019 session. The Oregon legislature will convene until 30 June 2019.